results presentation full year 2011
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TRANSCRIPT
Results Presentation
Full Year 2011
1
©IBERDROLA
Legal Notice
DISCLAIMER
This document has been prepared by Iberdrola, S.A. exclusively for use during the presentation of financial results of the 2011 fiscal year. As a consequence thereof, this document may not be disclosed or published, nor used by any other person or entity, for any other reason without the express and prior written consent of Iberdrola, S.A. Iberdrola, S.A. does not assume liability for this document if it is used with a purpose other than the above.
Except for the financial information included in this document (which has been extracted from the annual financial statements of Iberdrola, S.A. corresponding to the fiscal year ended on December 31, 2011, as audited by Ernst & Young, S.L.), the information and any opinions or statements made in this document have not been verified by independent third parties; therefore, no express or implied warranty is made as to the impartiality, accuracy, completeness or correctness of the information or the opinions or statements expressed herein.
Neither Iberdrola, S.A. nor its subsidiaries or other companies of the Iberdrola Group or its affiliates assume liability of any kind, whether for negligence or any other reason, for any damage or loss arising from any use of this document or its contents.
Neither this document nor any part of it constitutes a contract, nor may it be used for incorporation into or construction of any contract or agreement.
Information in this document about the price at which securities issued by Iberdrola, S.A. have been bought or sold in the past or about the yield on securities issued by Iberdrola, S.A. cannot be relied upon as a guide to future performance.
IMPORTANT INFORMATION
This document does not constitute an offer or invitation to purchase or subscribe shares, in accordance with the provisions of the Spanish Securities Market Law (Law 24/1988, of July 28, as amended and restated from time to time), Royal Decree-Law 5/2005, of March 11, and/or Royal Decree 1310/2005, of November 4, and its implementing regulations.
In addition, this document does not constitute an offer of purchase, sale or exchange, nor a request for an offer of purchase, sale or exchange of securities, nor a request for any vote or approval in any other jurisdiction.
The shares of Iberdrola, S.A. may not be offered or sold in the United States of America except pursuant to an effective registration statement under the Securities Act of 1933 or pursuant to a valid exemption from registration.
2
FORWARD-LOOKING STATEMENTS
This communication contains forward-looking information and statements about Iberdrola, S.A., including financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future operations, capital expenditures, synergies, products and services, and statements regarding future performance. Forward-looking statements are statements that are not historical facts and are generally identified by the words “expects,” “anticipates,” “believes,” “intends,” “estimates” and similar expressions.
Although Iberdrola, S.A. believes that the expectations reflected in such forward-looking statements are reasonable, investors and holders of Iberdrola, S.A. shares are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of Iberdrola, S.A., that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include those discussed or identified in the documents sent by Iberdrola, S.A. to the Comisión Nacional del Mercado de Valores, which are accessible to the public.
Forward-looking statements are not guarantees of future performance. They have not been reviewed by the auditors of Iberdrola, S.A. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date they were made. All subsequent oral or written forward-looking statements attributable to Iberdrola, S.A. or any of its members, directors, officers, employees or any persons acting on its behalf are expressly qualified in their entirety by the cautionary statement above. All forward-looking statements included herein are based on information available to Iberdrola, S.A. on the date hereof. Except as required by applicable law, Iberdrola, S.A. does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Legal Notice
3
Agenda
FinancingFinancing
ConclusionConclusion
Highlights of the periodHighlights of the period
RegulationRegulation
Annex: Annex: -P&LP&L-Iberdrola Renovables informationIberdrola Renovables information
Analysis of resultsAnalysis of results
4
Even with impairments of Eur 402 M (pre-tax), Net Profit amounts to Eur 2,805 M, Recurring Net Profit up 1.2%
Highligts of the period: Results
EBITDA totals Eur 7,650 M, up 1.6%Operating Cash Flow up 5.8% to Eur 6,047 M
Proposal to AGM to maintain the shareholder remuneration at the same level as in 2011
Significant financial strengthLeverage 46.4%(1)
Operating efficiency continues to improveNet Operating Expenses over Gross Margin reduced by 1.7%
(1) Excluding Tariff deficit 5
33%
47%
18%2%
Gross Margin up 3.3% to Eur 12,026 M
Gross Margin (Eur M)Gross Margin (Eur M)
11,645
12,026
Gross Margin by businessGross Margin by business
Gross Margin
RenewablesRenewables
RegulatedRegulated
LiberalisedLiberalised
OthersOthers
Contribution from Regulated and Renewable businessesincreased to 2/3 of the total
6
Efficiency
Net Op. Expenses/Gross MarginNet Op. Expenses/Gross Margin2011 v 2010 increase2011 v 2010 increase
1.7% improvement in operating efficiency
7
30%
51%
19%
EBITDA up 1.6% to Eur 7,650 M,with a higher contribution from Regulated and Renewable businesses (70%)
EBITDA by businessEBITDA by business
EBITDA
RenewablesRenewables
Regulated Regulated
LiberalisedLiberalised
EBITDA (Eur M)EBITDA (Eur M)
7,528
7,650
Liberalised business impacted by a 50% increase in Levies, up to Eur 621 M (Eur 518 M in Spain)
8
Balance Sheet Management
Optimizing financial strength and liquidityConsolidating “A” Rating
Eur 9,294 M liquidity,covering 2 years of financing requirements
80% of the Debt maturing in 2012 has already been refinanced
Improvement in financial ratios
9
12%
44%
39%
5%
Eur 4,002 M in organic investments(close to 85% in Regulated and Renewable businesses)…
Investment by businessInvestment by business
Investments
RenewablesRenewables
Regulated Regulated
LiberalisedLiberalised
Investment by RegionInvestment by Region
LatamLatam
UKUK
SpainSpain
USAUSA
OthersOthersOthersOthers
… and in addition the investments related to the acquisition of Elektro and the merger with Iberdrola Renovables
30%
20%29%
11%10%
10
Operating Cash Flow totals Eur 6,047 M, a 5.8% increase
Net Profit and Operating Cash Flow
Net Profit (Eur M)Net Profit (Eur M)
2,871 2,805
Net Profit amounts to Eur 2,805 Mincluding impairments amounting to Eur 402 M (pre-tax)
Operating Cash Flow (Eur M)Operating Cash Flow (Eur M)
5,7186,047
11
Shareholder Remuneration Proposal
Shareholder remuneration proposal to AGM of at least Eur 0.326/share, in line with last year
Final remuneration of at least Eur 0.18/share…
…composed of Eur 0.03 in cashand a minimum of Eur 0.15 through a scrip dividend…
...in addition to the dividend of Eur 0.146/share paid in January
*Proposal approved by the Board of Directors at its meeting on 20 February 2012 12
Key Regulatory Issues United Kingdom
Stable regulation and reasonable returns in Networks
Transmission: defined framework for 2013-2021 GBP 2,600 M investments
Distribution: defined framework until 2015GBP 2,000 M investments
Framework to update the traditional generation fleet
Framework for renewable capacity to be commissioned after 2017
Pending allocation of transmission charges among generation facilities
Lack of regulatory definition in Generation Business (EMR)
13
Key Regulatory Issues Spain – Current status
Lower demand
EU renewable energy targets for 2020 have been reached
Renewables remuneration is higher than European average
Lower remuneration of networks than European average
The traditional generation mix has lower prices than European average
Final price for electricity supply in Spain is slightly higher than European average
Costs not related with supply that are included in the electricity billare higher than the European average
14
0
10.000
20.000
30.000
40.000
2007 2008 2009 2010 2011
Accrued premiums Accrued deficit
… especially due to solar and hybrid gas-solar
The tariff deficit is directly linked to the increase in renewable energy premiums…
Key Regulatory Issues Spain
Tariff deficit evolution (total recognised)and Special Regime premiums (accrued Eur M)
15Source: CNE and MiNETur
Recently adopted measures are a step in the right direction…
Circa Eur 13.0 bn already securitized during 2011 and Q1 2012Circa Eur 7.0 bn* still pending
RD-L 1/2012 (Renewables moratorium)
… however they are insufficient to solve the tariff deficit
Key Regulatory Issues Spain
16*At 23 February 2012. Includes legal limit increase recognised for 2010, ex-ante 2011 and ex-ante 2012
Agenda
FinancingFinancing
ConclusionConclusion
Highlights of the periodHighlights of the period
RegulationRegulation
Annex: Annex: -P&LP&L-Iberdrola Renovables informationIberdrola Renovables information
Analysis of resultsAnalysis of results
17
Gross Margin up 3.3% to Eur 12,025.8 M, as the diversified business portfolio of the Group more than offsets the weak performance of Liberalised UK, …
Gross Margin - Group
… and Basic Margin up 3.2% (Eur 12,274.7 M), in line with Gross Margin
11,645.212,025.8
FY 2010 FY 2011
-287.3
Sale of US Gas, Guatemala and others
+436.5
Elektro contribution
Rest of Businesses
-120.5
Liberalised UK
+351.9
Elektro consolidation compensates for the lost contribution of assets sold in 2010
18
Levies up 21.9% to Eur 1,107.1 M due to the Liberalised Business
Net Operating Expenses* up 1.7% to Eur 3,517.2 M
Net Operating Expenses - Group
Net Operating ExpensesNet Operating Expenses% v
FY 2010FY 2011Eur M
Total 3,517.2 +1.7%
+7.0%
-3.6%
1,873.81,873.8
1,643.41,643.4
Net External Services
Net Personnel Expenses
*Excludes Levies
Operating HighlightsOperating Highlights
Net Personnel Expenses down Net Personnel Expenses down
despite Elektro consolidationdespite Elektro consolidation
Net External Services affected by change of Net External Services affected by change of consolidation scope and IBE USA storm costsconsolidation scope and IBE USA storm costs
19
The incorporation of Elektro is compensated by the sale of Guatemala The incorporation of Elektro is compensated by the sale of Guatemala and Connecticut Gas, Networks Spain non recurring items and fx impactand Connecticut Gas, Networks Spain non recurring items and fx impact
Like-for-like EBITDA up 1.7% and reported EBITDA up 1.6%
EBITDA - Group
+1.7%
Like-for-like EBITDA
ReportedEBITDA
-156
+1.6%
Eur M
EBITDA
Basic Margin
FY 2011FY 2011
Net. Op. Exp.
% v FY % v FY 20102010
12,274.7
7,650.5 +1.6%
-3,517.2 +1.7%
+3.3%
FX Impact
Levies -1,107.1 +21.9%
-86-86
Assets disposed Elektro
+312-75-75
NetworksSpain
20
… where more stable businesses (Regulated) offset the more volatile businesses (Liberalised)
Group EBITDA up 1.6% due to Iberdrola’s diversified business model …
EBITDA - Business
+5.5%
-7.4%
+0.0%
Regulated*
Liberalised
Renewables 1,455.6
3,825.4
2,255.1
FY’11 EBITDA (Eur M)EBITDA BreakdownEBITDA Breakdown
RenewablesRegulated
Liberalised
19%
30%
51%
21
… … taking advantage of regulatory improvements, taking advantage of regulatory improvements, synergies and best practicessynergies and best practices
Regulated EBITDA up 5.5% to Eur 3,825.4 M, …
Results By Business Regulated
Financial Highlights (Eur M) Financial Highlights (Eur M)
FY 2011FY 2011
EBITDA
Gross Margin
Net Op. Exp.
% v % v FY 2010FY 2010
EBITDA BreakdownEBITDA Breakdown
Spain-0.2%
USA-23.0%
United Kingdom+4.2%
+4.5%5,544.5
+5.0%-1,324.5
+5.5%3,825.4
547.71,555.4
832.3
Brazil+59.9%
890.2
22
On a like-for-like basis, EBITDA up 4.8%On a like-for-like basis, EBITDA up 4.8%
EBITDA down 0.2% to Eur 1,555.4 M, due to new regulatory framework applicable from Q4 2010
Results By BusinessRegulated Spain
Financial Highlights (Eur M)Financial Highlights (Eur M)
EBITDA
Gross Margin
FY 2011FY 2011
Net Op. Exp.
% v % v FY 2010FY 2010
2,022.3
1,555.4
-1.4%
-0.2%
-389.6 -6.4%
Operating HighlightsOperating Highlights
Higher regulated revenues: Higher regulated revenues: +6.1% v FY 2010+6.1% v FY 2010
Lower Net Op. Expenses:Lower Net Op. Expenses:Due to efficiency gainsDue to efficiency gains
Positive settlements FY’10:Positive settlements FY’10:Eur 75 M Eur 75 M (corresponding to 2009)(corresponding to 2009)
23
EBITDA up 4.2% to Eur 832.3 M …
Results By BusinessRegulated United Kingdom
Financial Highlights (Eur M)Financial Highlights (Eur M)
FY 2011FY 2011 % v % v FY 2010FY 2010
1,008.0
832.3
+4.0%
+4.2%
-83.4 -1.7%
EBITDA
Gross Margin
Net Op. Exp.
Operating Highlights
GBP: -1.1%FX FX ImpactImpact
Highlights of the PeriodHighlights of the Period
Efficiency improvement: Gross Margin growth > Net Op. Exp. growth
Higher revenues due to higher asset base
… … due to increased investments and cost controldue to increased investments and cost control24
… … as business improvements are more than offset by the sale of Connecticut Gas, exchange rate effect and storm costs
EBITDA in Euros under IFRS down 23.0% to Eur 547.7 M,Like-for-like EBITDA up 3.9%, …
Results By BusinessRegulated USA
Financial Highlights Financial Highlights
FY 2011FY 2011
EBITDA
Gross Margin
Net Op. Exp.
% v % v FY 2010FY 2010
-16.5%1,293.4
-10.3%-524.1
-23.0%547.7
Eur M
548
EBITDA FY ‘10
EBITDA FY ‘11
Business Improv.
+22
Storm&otherIFRS adj.
-64
711
EBITDA ImpactsEBITDA Impacts
Fx Impact
-27
Connecticut Gas
-94
25
… … excluding Elektro, EBITDA up 3.8% excluding Elektro, EBITDA up 3.8%
Brazil EBITDA increases 59.9% to Eur 890.2 M, due to Elektro consolidation (Eur +312 M), Real revaluation (Eur +0.5 M) and operating improvements …
Results By BusinessBrazil
Brazil Demand (+2.6%) and operating improvements
Operating Highlights
Real: +0.1%FX FX
ImpactImpact
Highlights of the PeriodHighlights of the Period
Elektro consolidation
Financial Highlights (Eur M)Financial Highlights (Eur M)
EBITDA
Gross Margin
FY 2011FY 2011
Net Op. Exp.
% v% vFY 2010FY 2010
1,220.8
890.2
+66.1%
+59.9%
-327.5 +85.7%New hydro capacity
26
… … due to lower output, weak performance of UK business, due to lower output, weak performance of UK business, sale of Guatemala and higher Leviessale of Guatemala and higher Levies
Liberalised Business EBITDA down 7.4% to Eur 2,255.1 M …
Results By Business Liberalised Business
Financial Highlights (Eur M) Financial Highlights (Eur M)
FY 2011FY 2011
Levies
Basic Margin
Net Op. Exp.
% v% vFY 2010FY 2010
EBITDA BreakdownEBITDA Breakdown
Spain+5.9%
Mexico-11.1%
United Kingdom-40.8%
361.9
1,570.7
322.5
-0.2%4,236.4
-2.7%-1,360.1
+50.1%-621.2
EBITDA -7.4%2,255.1
27
EBITDA up 5.9% to Eur 1,570.7 M …
Financial Highlights (Eur M)Financial Highlights (Eur M)
EBITDA
Basic Margin
FY 2011FY 2011
Net. Op. Exp.
% v% vFY 2010FY 2010
2,848.5
1,570.7 +5.9%
-760.2 -4.6%
+6.4%
Results by BusinessLiberalised Business Spain
Operating Highlights Operating Highlights
-13% lower output due mainly to -13% lower output due mainly to -22% lower hydro and -7% lower nuclear production-22% lower hydro and -7% lower nuclear productionHydro reserves 51% (+0.7% > avge. historical level)Hydro reserves 51% (+0.7% > avge. historical level)
Margin improvement: Higher prices Margin improvement: Higher prices (Achieved Price* Eur 61/MWh)(Achieved Price* Eur 61/MWh)
more than offset higher Procurement costsmore than offset higher Procurement costs
… … due to improvement in margins despite 31% rise in Levies,due to improvement in margins despite 31% rise in Levies,that account for 33% of the EBITDAthat account for 33% of the EBITDA
2012: 56 TWh of production 2012: 56 TWh of production already sold above Eur 60/MWhalready sold above Eur 60/MWh
*Iberdrola average power price for the Spanish system includes spot and forward sales and retail margin for FY 2011
Levies -517.6 +30.5%
28
Eur 300 M wiped out, Eur 300 M wiped out, leading nuclear business ROCE below cost of capitalleading nuclear business ROCE below cost of capital
Levies in Spanish Liberalised Business have multiplied by 2.4 in 2 years, reaching Eur 518 M, due to Social Bonus, nuclear taxes and energy saving and efficiency plan
Liberalised Business Spain - Levies
-517.6
FY 2009 FY 2011
-216.1
Eur M
FY 2010
- 396.7
NuclearEur -189 M
Other Regulatory*Eur -150 M
Local & Other
Eur -179 M
*Includes Energy Efficiency and Social Bonus** Includes direct Levies associated with nuclear production (CSN, Enresa, IBI, IAE,…) plus proportional part of other regulatory measures applicable to the generation business
Eur -339 M
X2.4 Tax on nuclear Eur 13/MWh
29
Results will improve in 2012 as margins recoverResults will improve in 2012 as margins recover
EBITDA is down 40.8% to Eur 322.5 M due to less production/sales in electricity and gas and lower electricity margins
Results By BusinessLiberalised Business United Kingdom
Financial Highlights (Eur M)Financial Highlights (Eur M)
EBITDA
Basic Margin
FY 2011FY 2011
Net Op. Exp.
% v% vFY 2010FY 2010
934.5
322.5
-11.0%
-40.8%
-509.4 +4.1%
Operating Highlights Operating Highlights
Lower Retail Power margins Lower Retail Power margins as higher commodity costs as higher commodity costs
are not offset by prices are not offset by prices
Lower Retail sales v FY 2010: Lower Retail sales v FY 2010: Power -5% Power -5% Gas -19%Gas -19%
Levies -102.5 n/aCERT/CESP reclasification as Levies
from Operating Expenses Net effect = 0 at Expenses and EBITDA level
30
Underlying EBITDA improves by 1.5% Underlying EBITDA improves by 1.5%
Mexico EBITDA is down 11.1% to Eur 361.9 M due to the sale of Guatemala assets in 2010 and exchange rate impact
Results By BusinessLiberalised Business Mexico
Financial Highlights (Eur M)Financial Highlights (Eur M)
EBITDA
Gross Margin
FY 2011FY 2011
Net Op. Exp.
% v% vFY 2010FY 2010
-12.9%453.5
-19.4%-90.6
-11.1%361.9
Operating Highlights
USD: -5.0%FX FX ImpactImpact
Highlights of the PeriodHighlights of the Period
Guatemala Asset Sales
Operating improvements
31
… … due to higher expenses (related to break up of maintenance contracts due to higher expenses (related to break up of maintenance contracts and merger costs), lower average price and fx impact (Eur -26 M)and merger costs), lower average price and fx impact (Eur -26 M)
EBITDA flat at Eur 1,455.6, and wind EBITDA* up 4.3%, …
Results By Business Renewables
* Excludes sale of contracts in 2010. **Excludes PTCs
Average load factor: 25.7% v 25.8% in FY2010
Load factor in Q4’11 27.9% v 28.3% in Q4’10due to low Spanish wind
Operating capacity: +10% to 13,209 MWInstalled capacity: +9.2% to 13,690 MW
Average price**: Eur 66.3/MWh v Eur 69.3/MWh in FY 2010
Due to the increase weight of US v Spain
Financial Highlights (Eur M)Financial Highlights (Eur M)Highlights of the PeriodHighlights of the Period
EBITDA
Gross Margin
FY 2011FY 2011
Net Op. Exp.
% v% vFY 2010FY 2010
+4.6%2,118.1
+16.2%-591.6
0.0%1,455.6
32
… … due to non-cash impact of asset impairments due to non-cash impact of asset impairments at Provisions level of Eur 332M at Provisions level of Eur 332M
Group EBIT down 6.7% to Eur 4,505.1 M …
EBIT - Group
D&A
% v % v FY 2010FY 2010
Total
FY 2011FY 2011
-3,145.4 +16.6%
-2,617.4 +4.1%
Provisions -528.0 +187%
Eur M
UK Thermal: CCS project cancelled, "carbon floor" reduces expected spreads and
makes life extensions challenging (Eur -286 M)
Renewables: Development costs relating to cancelled projects (Eur -46 M)
Provisions – Asset impairmentsProvisions – Asset impairments
Renewables amortisation: Useful life increased from 20 to 25 years, in line with sector norm (Eur 66 M)
33
… while debt cost increases 40 bps to 4.6%, including Elektro’s debt in Reais (+7 bps), partially offset by lower average net debt (-3.1%)
FX derivatives due to P&L hedging policy help improve financial expenses to Eur -1,061.9 M (-17.5%) …
Net Financial Expenses - Group
-1,061.9
FY ‘10 Net Financial Expenses
FY ‘11 Net Financial Expenses
InterestCost
-1,287.9
Tariff Deficit Interests
+41.5
Derivatives, FX & others
Eur M
Finance costfrom debt evolution
+30.9-110.3
+263.9
-1,356.7
Change in average debt
34
… but asset impairments and lower Non Recurring Results drive Reported Net Profit down 2.3%, to Eur 2,804.5 M, despite tax recoveries
Recurring Net Profit up 1.2% to Eur 2,613.9 M …
Non Recurring (Eur M)Non Recurring (Eur M)
Net Profit - Group
Lower Corporate Tax Rate in the UK: -2 p.p. in 2011 v -1 p.p. in 2010 (Eur 83 M)
for deferred taxes
Reversal of provisions in the US after settlement reached with the tax authorities
(Eur 169 M)
Gamesa: Maintaining the achievement of its Strategic Plan but delaying the timing of its
fulfilment (Less Equity Eur -70 M)
Asset impairmentsAsset impairments
Corporate TaxCorporate Tax
UK Thermal: CCS project cancelled, "carbon floor" reduces expected spreads and makes
life extensions challenging (Provision of Eur -286 M)
Renewables: Development costs relating to cancelled projects
(Provision of Eur -46 M)
Lower Non Recurring Results v 2010: Eur -133 M (-74.1%)
2011 Effective Corporate Tax Rate: 15.7%
TOTAL ASSET IMPAIRMENTS (Gross): Eur -402 M
35
Agenda
FinancingFinancing
ConclusionConclusion
Highlights of the periodHighlights of the period
RegulationRegulation
Annex: Annex: -P&LP&L-Iberdrola Renovables informationIberdrola Renovables information
Analysis of resultsAnalysis of results
36
… thanks to Eur 10 bn of tariff deficit already placed by FADE in 2011 (Eur 3 bn IBE) and Eur 2.4 bn in 2012 (Eur 732 M IBE), total securitisations now more than Eur 12 bn
Tariff Deficit falls to Eur 2,991 M at the end of 2011 …
Tariff Deficit
*Includes interest of Eur 57 M relating to the 2006, 2008, 2009 & 2010 tariff deficits
5,248
IBE Total Net TariffDeficit at Dec 10
-437*+1,141
2011 Net Tariff Deficit
Funds Collected2011
IBE Total Net Tariff Deficit at Dec 2011
2,991
Tariff deficit securitised
-2,558
Tariff deficit securitised
2011 2012
-403Private placements
Public placements
2,961
Private placements
-732
Eur M
37
Debt increase in 2011 is related to the buy out of IBR minority shareholders and Elektro acquisition
Leverage stands at 46.4% at FY2011 excluding tariff deficitand 48.8% including tariff deficit
Including Tariff Deficit
ExcludingTariff Deficit
FY 2011 LeverageFY 2011 LeverageFY 2011 Net Debt and EquityFY 2011 Net Debt and Equity
Tariff DeficitTariff Deficit
EquityEquity
2,9912,991
33,20833,208
Adjusted Net DebtAdjusted Net Debt 31,70631,706
48.8%48.8%
46.4%46.4%
Eur M
5,2485,248
31,66331,663
30,01430,014
FY ‘11 FY ‘10
Financing – Adjusted Leverage
Note all debt figures include TEI
Adjusted Net DebtAdjusted Net DebtEx deficitEx deficit 28,71528,715 24,76624,766
38
... even including tariff deficit
Credit metrics solidly positioned within the A-/A3 rating bands…
Financing – Financial Ratios (Pro-forma, includes 1 year of Elektro and Renewables: Results and Debt)
(1) FFO = Net Profit + Minority Results + Amortiz.&Prov. – Equity Income – Net Non-Recurring Results + Fin. Prov.+ Goodwill deduction – Unwind of tax provision in Renewables USA(2) Including TEI but excluding Rating Agencies Adjustments(3) RCF = FFO – Dividends
FFO(1)/Net Debt(2) (%) RCF(3)/Net Debt(2) (%)
19.1%19.1%
19.5%19.5%
16.7%16.7%
17.2%17.2%
FY 2010 FY 2011 FY 2010 FY 2011
23.1%23.1% 21.5%21.5%20.3%20.3%
18.9%18.9%
Excluding tariff deficitExcluding tariff deficitIncluding tariff deficitIncluding tariff deficit
39
Group’s Liquidity up to 9.3 bn,of which only Eur 2 bn of credit lines expire before 2014 …
Financing – Liquidity
… covering up to 24 months of financing needs
Limit
Cash & Short Term Fin. Invest.
2013
Total Credit Lines
Withdrawn Available
Eur M
2014+
2012
Total Adjusted Liquidity
Credit Line Maturities
1,980 1,086
2,091
894
7,2032,7709,973
1,104 800304
9,294
6,889 5,3171,572
40
1,181
Financial Profile
*Does not include drawn credit lines**Includes commercial paper outstanding balance
6.2
FY 2010 FY 2011
6.3
Eur M
1,880
2,778
4,0513,532
13,874
2015 2017 & Onwards**
4,369
20162013 20142012
Iberdrola debt maturity profile* Average debt maturity
Average maturity of 6.3 years
220
171308
Q1 Q2 Q3 Q4
41
Agenda
FinancingFinancing
ConclusionConclusion
Highlights of the periodHighlights of the period
RegulationRegulation
Annex: Annex: -P&LP&L-Iberdrola Renovables informationIberdrola Renovables information
Analysis of resultsAnalysis of results
42
Tariff deficit
The tariff deficit is the difference between the real cost of regulated activities and what the customer pays for them
Circa Eur 7.0 bn of total tariff deficit pending to be securitised*
It has been historically financed by the 5 main utilities (RD 6/2010), excluding other companies with impact on regulated costs,
with a non recognised financial cost of over Eur 1 bn
The problem has worsened since 2008, due to the massive commissioning of solar plants whose premiums are included in such regulated costs
*At 23 February 2012. Includes legal limit increase recognised for 2010, ex-ante 2011 and ex-ante 2012 43
1,910
177 177
4,007
3,026
1,571
5,108
4,300
5,554
4,056
<=2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Tariff deficit evolution
Source: MiNETur , CNE (a)Includes island deficit distributed in the 2003-2005 period(b)Mainland deficit recognised RD 485/2009 (Eur 2,280 M). Island deficit recognised in RD 437/2010 (Eur 746 M)(c)Mainland deficit settlement 14/2007, CO2 revenues clawback applied Eur-43 M (Eur 1,181 M). Island deficit recognised in RD 437/2010 (Eur 347 M)(d)Mainland deficit settlement 14/2008, CO2 revenues clawback applied Eur -1.179 M (Eur 4,641 M). Island deficit recognised in RD 437/2010 (Eur 467 M)(e)Mainland deficit settlement 14/2009, CO2 revenues clawback applied H109 Eur -316 M(f)Mainland deficit settlement 14/2010(g)Internal forecast
In 2005 the deficit became a structural problem,with a significant increase from 2008
(a)
(b)
(c)
(e)
(f)
(g)
(d)
44
Spanish tariff structure
50% of the final electricity tariff corresponds to costs non related with the electricity costs of supply
Production costs Own access costs Non related access costs Taxes Total costs
12,247
6,954
11,318
7,335 37,854
Source: Internal information: Production costs calculated as the result of the national demand according to REE (276 TWh ) times final energy average price in 2010 + customers capacity payments Tax rate: Electricity tax (1.05113*4.864%) + 18% VAT, calculated under the assumption that the revenues collected from the customer equal the total access cost zero deficit) Own access costs of the system: cost of producing energy, transmission and distribution Associated access cost:s special regime premiums, annual recovery of tariff deficit , Islands, other associated costs (CNE, System Operator, nuclear moratorium,…) and taxes (electricity tax and VAT)
Own costs of the system 50% Non related costs 50%
2010 electricity system costs2010 electricity system costs
Access CostsAccess Costs32%
18%
30%
20%
45
OR market remuneration
SR market remuneration
Transmission remuneration
(Eur M)
(Eur M)
(Eur M)
2005 2010 Increase
11,766 7,058 -4,708
3,040 3,072 32
922 1,397 475
%Incr.
-40%
0%
52%
Annual deficit recovery (Eur M) 227 1,833 1,606 707%
Total energy cost (Eur M) 14,806 10,130 -4,676 -32%Distribution remuneration* (Eur M) 3,881 5,272 1,391 36%
∆D*∆CPI
32%
Special regime premiums (Eur M) 1,246 7,134 5,888 473%
Main regulated costs (Eur M) 6,276 15,636 9,360 149%
Special Regime renewables premiums and annual recovery of the deficitare the costs that have increased significantly more
Special regime premiums equal 70% of total energy cost
Source: CNE, REE and OMEL settlements(*) Not including previous years adjustments(*) Not including previous years adjustments
Spanish tariff structure
OR: Ordinary RegimeSR: Special RegimeSR: Special Regime 46
Costs non related to energy supply have multiplied by 3 in recent years
Spain: Key regulatory issues
Island subsidies
Energy saving and efficiency plan
Prior years’ annual payments of tariff deficits Non related access costs (Eur M)Non related access costs (Eur M)
(excluding special regime subsidies) (excluding special regime subsidies)
Interruptibility service
Costs non related to energy supply are the ones that have caused the deficit
National coal subsidies
2005
1,119
2011
3,299
…
47 Source: CNE, MiNETur, and own estimates based on MiNETur data for the National Coal Decree
Average price since Jan 2003
(Eur/MWh)
Average 46.84
Spain 42.90
Spanish energy prices are 10% below the average of the main European countries
The cost of the energy in the Ordinary Regime has not caused the deficit
Energy price in Spain v Europe
51.53
Netherlands 52.41
Italy 70.07
Ø 53.77
France 48.27
49.23
Nordpool 51.12
Germany
European wholesale prices (Eur/MWh)
;
Total average price wholeasale market Ø 57.36
56.80
52.21
48.22
56.58
56.67
73.70
Average spot 20111 Forward electricity price 20122
Spain
1 Average spot price from 1 January until 30 September 20112 Average quotation of 2012 annual product from 1 January until 30 September 2011Source: Bloomberg, NASDAQ, OMX, Commodities
48
Hydro
Gross assetsGross assets(at 31.12.2009)(at 31.12.2009)
13,169 6,828
19,584 6,956Nuclear
Net assetsNet assets(at 31.12.2009) (at 31.12.2009)
Source: UNESA “The Economic Situation of the Electricity Activity . 1998-2009” (2011) Source: UNESA “The Economic Situation of the Electricity Activity . 1998-2009” (2011)
The Ordinary Regime’s generation fleet has not been fully depreciated
Ordinary Regime generation
12,332 10,737Combined Cycles
10,549 3,742Coal
Eur M
In the case of nuclear, close to Eur 500 M of annual recurrent investments are made, and increasing due to the new requirements imposed
49
Source: KPMG report “Study on the remuneration model of the regulated activity of electricity distribution across Europe”. January 2012Source: KPMG report “Study on the remuneration model of the regulated activity of electricity distribution across Europe”. January 2012
Ø 0.11 Ø 6,234Ø 19
United Kingdom 4,852.6
Sweden 2,600.0
Norway 2,200.0
Netherlands 2,517.1
Italy 5,700.0
France 11,375.0
Finland 1,087.0
Denmark 799.7
Belgium 1,929.2
Austria 1,600.0
Portugal 1,245.0
Ireland 615.4
Greece 863.4
Spain 4,656.0
Revenues Eur M
Note: The remuneration recognised in Spain corresponds to 2010 provisional one to be homogeneous with other countries (ITC 3519/2009 Order)
Distribution remuneration in Spain is 10% below the average of the main European countries
Distribution remuneration in Spain v Europe
Networks costs have not caused the deficit50
ROA electric activity in Spain v cost of capital
2007 2009 201020082006
ROA1 electric activity2 in Spain Sector WACC3
1 ROA = Return on assets, calculated as the quotient of the operating result net of taxes and the value of all the assets2 Electricity Spain includes traditional electric activity in Spain (generation including renewables, distribution and supply); 3 Data of all UNESA companies
The returns of the electric activity in Spain are below cost of capital …
… which undermines the theory of trying to solve the tariff deficit through new “ad hoc” taxes
SectorWACC
6.7
51
Source: EC; Entso; REE; CNE, Terna; GME; OMEL; APX; EPEX; RTE; BMWI; EEX; DUKES
PER 2011-2020 targets and current situation of the Spanish systemRenewable final energy target required by EU2020. %. ktep
UnitedKingdom 15%
Italy 17%
Germany 18%
Spain 20%
France 23%
2020 renewable energy target %. GWh
31%
26%
39%
38%
27%
2010 renewable energy consumption2010. %. GWh
7%
24%
17%
37%*
15% 12 p.p.
1 p.p.
22 p.p.
2 p.p.
24 p.p.
Difference (p.p.)
Corresponds to 20.8%
of renewable final energy in
2020
Regulation: Spain
The measures presented by the Government (RDL 1/2012) do not prevent this target from being fulfilled
The drive for renewable energy in Spain has gone beyond the 20% required by the EU
*Weight of electricity coming from renewable sources over demand in 2010 52
5.750 M€
22,49
10,78
1,08
24,04
Regulation: Spain
According to the European Energy Regulators Council, Spain is the country where the support to renewable energies represents a highest cost per MWh in Europe: Eur 22.5 Eur/MWh in 2009
Proportion of energy subject to subsidies v unitary cost of support per MWh (2009)
Source:CEER (European Energy Regulators Council) report on Renewable Energy Support in Europe. Ref: C10-SDE-19-04a. 4-May-2011Source: Internal using CEER methodology
The costs of renewables, specially solar, have caused the deficit
Higher cost in Spain due to:•Larger proportion of renewables in the total output•Higher weight of the most expensive technologies in the renewables mix
53
85,320
9,598
4,4433,945
X 9
In 2011, nuclear and hydro output was 9 times that produced by solar and hybrid gas-solar …
Regulation: Spain
… while their costs were similar
54 Source: (1) 2011 Preliminary report (REE) . (2) Spain Special Regime energy monthly sales report (CNE, end October 2011). In the case of the Ordinary Regime, includes daily market, intra-day, ancillary services and capacity payments.
13.7% 15.6%
1.8%
37.6%
8.3%
45.9%
The remuneration framework of the hybrid gas-solar results in double digit project returns
The reduction in construction costs, combined with a remuneration fixed in 2007and the use of storage result, in very high returns
13.7% Project IRR without storage (+2% with storage)38% Project Equity return without storage (+8% with storage)
Whithout storage
Project IRR hybrid gas-solarin operation in 2013
Equity return hybrid gas-solarin operation in 2013 (80% leverage)
With storage Whithout storage With storage
Considering that the 15% limit of alternative fuel is observed (typically natural gas)
Regulation: Spain
Source: Return simulation study, with confirmation based on market transactions 55
Regulation: Spain
Should the consumer pay up to five times more for the same product?
Solar represents 18% of the production cost and barely 4%
of the energy produced*
Wind, with 15% of the output, contributes only moderately
to the cost increase*
Conventional energies are the cheapest and the ones that contribute
most to the system*
The cost of the Special Regime energies is 50% higher
than the average*
56
Ordinary Regime
Wind HybridGas-Solar
SolarPV
6170
332
Ordinary regime and new renewables Ordinary regime and new renewables remunerationremuneration(1)(1)
Eur/MWh
121
(1) 2012 Ordinary Regime remuneration (includes forward energy prices, Technical Restrictions, ancillary services and capacity payments). Special Regime remuneration based on remuneration forecasted for new facilities: wind (market price Eur 50/MWh + 2012 premium); Hybrid gas-solar (market price Eur 50/MWh + 2012 premium); Solar PV (tariff for type II facilities in first auction of 2012 according to RD 1578/2008).
* Company information for 2011.
x 5.4
Regulation: Spain
57
Economic and environmental comparison between the different technologies
Solar PV
Wind
Years with right to receive premium
Hybrid solar-gas
20
25-30
25 + 80% rest of life (updated CPI-0,5%)(1)
• No CO2 emission • No water consumption
• No CO2 emission • Limited water consumption
Environmental impact
• Emission of 185 gr CO2/kWh (half of a CCGT)• Consumption: 10 cubic meters /MWh (cooling,
cleaning, water-steam cycle)
(1) From January 1 2013
Basic principles to resolve the tariff deficit
Regardless of how the measures are finally implemented, a number of principles should prevail in order to resolve the deficit problem
Following a criteria of similar and reasonable return for all activities with regulated remuneration (not subject to market forces)
Does not make sense to install more capacity, with renewables producing close to the target set for 2020 and demand at levels of 2006
Decide who pays for the CO2 reduction energy policy - All the citizens- Energy consumers
Who
How much
How
58
Agenda
FinancingFinancing
ConclusionConclusion
Highlights of the periodHighlights of the period
RegulationRegulation
Annex: Annex: -P&LP&L-Iberdrola Renovables informationIberdrola Renovables information
Analysis of resultsAnalysis of results
59
The tariff deficit can be solved:
Stop the construction of the most expensive renewables
Remunerate all regulated activitieswith non-discriminatory profitability criteria
Share the cost of renewables among all energy sectors
Remove from tariffs concepts that should not be borne by the consumer(efficiency, social bonus, islands, national coal…)
Allocate the revenues from CO2 auctions to the financing of renewables
Key Regulatory Issues Spain
60
Increase market liberalization (reduce the threshold for integral regulated tariffs)
Unify the current regional “pseudo-environmental” chargesin one single environmental tax system
Moderate increase in access fees without significantly impacting final prices
Undertake economic measures that were already in place in the past to incentivize energy efficiency and that now have disappeared
Share the financing of the future deficit among all the sector participants
Accelerate the securitization of the current deficit
Key Regulatory Issues Spain
61
Conclusion – Results 2011
Net profit Eur 2,805 MOperating Cash Flow Eur 6,047 M
In a difficult year, Iberdrola consolidates its results
A balanced and diversified business portfolio
Increasing Gross Margin, EBITDA and Recurrent Net Profit
Management modelImproving efficiency
Increasing internationalisationIncreasing financial strength
Proposal to maintain the same shareholder remuneration as in 2011
62
Against the current adverse external conditions, Iberdrola focuses on improving efficiency and operational management
Lower demand and prices
Low hydro output in Q1 2012 and lower wind margins over the period 2010-2012
Regulatory changes impacting Renewables insome of our most important markets
Very significant increase in Levies
External Factors -
+Internal Management
Increasing share of Regulated business and new capacity in Brazil
Modulating investment levels to generated cash flow
Improving efficiency and cost control
Improving financial management
Negative exchange rate impact of USD and GBP v Eur
2010-2012 Plan
63
If current circumstances persist …
EBITDA Growth at the bottom end of the expected range ( 5%)
Recurring Net Profit Growth below the expected range (<5%)
CAGR 2010-2012eCAGR 2010-2012e
Allowing us to maintain shareholder remuneration similar to current level
~_
64
2010-2012 Plan
65
Agenda
FinancingFinancing
ConclusionConclusion
Highlights of the periodHighlights of the period
RegulationRegulation
Annex: Annex: -P&LP&L-Iberdrola Renovables informationIberdrola Renovables information
Analysis of resultsAnalysis of results
66
EBITDA up 1.6% to Eur 7,650.5 MNet Profit down 2.3% to Eur 2,804.5 M
Var. %Var. %FY 2011FY 2011
Net Op. Expenses*
Eur M FY 2010FY 2010
Income Statement – Group
EBITDA
Operating Profit (EBIT)
Reported Net Profit
+1.67,650.5 7,528.0
-6.74,505.1 4,829.7
-2.32,804.5 2,870.9
Net Financial Expenses -13.2-1,061.9 -1,287.9
-3,517.2 +1.7-3,456.8
Gross Margin 12,025.8 +3.311,645.2
*Excludes Levies
Recurring Net Profit +1.22,613.9 2,581.9
Revenues 31,648.0 +4.030,431.0
Operating Cash Flow +5.86,047.3 5,718.2
Levies +21.91,107.1 908,4
67
Agenda
FinancingFinancing
ConclusionConclusion
Highlights of the periodHighlights of the period
RegulationRegulation
Annex: Annex: -P&LP&L-Iberdrola Renovables informationIberdrola Renovables information
Analysis of resultsAnalysis of results
68
Highlights of the period
Installed capacity reaches 13,690 MW
Consolidated EBITDA stable at Eur 1,455.6 M,but it would grow 2.6%
excluding results from selling contracts in 2010
Operating capacity increases 10% and output by 13.1% to 28,721 GWh
Improvement in OPEX efficiency of 1.3%
69
Installed capacity 31/12/2011
Operating capacity 31/12/2011
579
Installed capacity under testing
Capacity under construction
Installed Capacity
Installed capacity up 9.2% to 13,690 MW…
… with 579 MW under construction
13,209
MW
481 13,690
70
YoY operating capacity increase
31/12/2010
12,006
MW
31/12/2011
13,209
Operating capacity breakdown
MW
Operating Capacity
Operating capacity up 10% to 13,209 MW …
… with 39% of the increase in US
+1,203
71
Wind UK
Wind US
Wind Spain
Wind ROW
Minih. & Others
Wind resource
2010
25.8
2011
25.7
Loadfactor 2010
%
Load factors of the period
Average load factor of 25.7% ...
… showing improving loadfactors in US and UK,though not enough to offset the Spanish 2011 wind resource
23.9%
20.4%
23.4%
25.5%
30.2%
21.5%
25.8%
23.8%
23.6%
31.1%
Loadfactor 2011
72
2011 Renewable output
GWh
Breakdown by geography
%
Renewable output
Output reaches 28,721 GWh (+13.1%) …
… showing significant growth in US (+26.8%) y UK (+49.8%)
Wind UK
Wind US
Wind Spain
Wind ROW
Minih. & Others
% v 2010
-4.5%
+49.8%
+19.3%
-9.0%
+26.8%
10,211
2,155
2,604
806
12,945
2011
TOTAL +13.1%28,721
73
Renewable average price
€/MWh
2010 2011
73.369.6
Prices in local currency
-1.0%
-3.3%
-4.5%
Eur-0.8/MWh
£-3.3/MWh
$-2.4/MWh
+6.9% Eur+6.3/MWh
Var % Var. v 2010
* Average selling price excluding PTC and effect of contracts sale
67,3 64,5
Renewable output prices
Larger contribution from the US businessreduces the average price …
… effect increased by collection of grants and fx
Long term PPA
Medium term PPA
Mainly feed-in tariffs
Regulatory Floor
USA*
UK
RoW
Spain
66.369.3
PTCPTC
Selling modaliity
74
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